Email this article to a friend

Denmark's €83bn public pension fund ATP made a return of 9% in 2012, with most of it coming from hedging interest-rates and inflation, demonstrating the need for pension funds of to cover these risks in a "challenging" market environment.

ATP's chairman Jørgen Søndergaard and acting chief executive Henrik Gade Jepsen said in this morning's results statement that they expected low interest-rates and low growth to persist during 2013.

They said: "Large imbalances continue to affect the world economy, and there are still significant risks in the financial markets. Investors face an elevated risk level, while the low interest rates also mean low return prospects. ATP is therefore expecting 2013 to be another challenging year. With this in mind, ATP will continue to maintain a cautious approach to investments."

ATP hedges itself against rising inflation and falling interest rates, both of which increase pension liabilities, using bonds and financial derivatives like interest-rate and inflation swaps. The fund said these had performed well in 2012, adding €6bn to its result. Conventional investments, like equities and credit, made €1.8bn.

But this performance was partially offset by growth in the fund's liabilities. Once falling Danish interest rates were taken into account, ATP's pensions bills also went up by around €5bn during the year.

Late last year, the Danish financial supervisory authority said pension funds could use an "adapted", more lenient rate to value their liabilities in the wake of the low-rate environment. ATP, however, has declined to use it. If it had, the fund said that its liabilities would be about €6.4bn smaller.

After tax, and €1.6bn of pensions paid out, and adding in the smaller amounts of money ATP makes by administering pensions on behalf of other Danish authorities, the organisation's overall profit for the year was about €1.4bn.

In the statement, Jepsen said: "I am pleased that in the middle of one of the worst economic slumps we are once more in a position to deliver a good result for 2012. With a return of Dkr58bn [€10.5bn], ATP’s robust investment strategy has once more shown its worth."

Jepsen is the fund's chief investment officer as well as its acting chief executive. The full-time successor to Lars Rohde, who departed in January to become the new governor of Denmark's central bank, is the former Citigroup banker Carsten Stendevad. He will take up the role of chief executive in May.

Within its growth assets portfolio, ATP said that corporate credit had been its best performer in 2012, making Dkr4.6bn overall, a return of about 10%. Higher-risk bonds, as well as loans to banks, did particularly well. Danish domestic equities and private equity also performed strongly.

There were slight falls, however, in ATP's commodities portfolio and its portfolio of inflation-linked assets, which include investments in property, infrastructure and index-linked bonds.